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Making Sense of Downstate Casinos

By Bennett Liebman

As part of the 2019 State budget negotiations, the owners of the two video lottery (VLT) parlors in the New York City area have proposed that they be allowed to convert their facilities into full-fledged casinos. They have promised considerable financial support to the State in return for these conversion rights. Without taking a position on the ultimate desirability of further casinos, any review of this issue requires consideration of the following concerns.

The VLT owners are MGM, which owns Yonkers Raceway, and Genting, which runs Resorts World at Aqueduct in Queens County. Both facilities are already enormous. Aqueduct had gambling revenue in excess of $850 million in 2018. The only casino with greater gambling revenues in the East and Midwest than Aqueduct is the Mohegan Sun casino in Connecticut. With Mohegan Sun facing competition from a new casino in Springfield Massachusetts, Aqueduct may soon be the area's largest gaming facility. No casino provides more tax revenue than Aqueduct.

Yonkers is no slouch either. It is only surpassed in gambling revenues in the East and Midwest by the two tribal casinos in Connecticut and three MGM facilities: the Borgata in Atlantic City, MGM Grand in Detroit, and MGM National Harbor outside Washington D.C.

What is preventing the expansion of casinos into the New York City area is the original 2013 amendment to the New York State Constitution, which authorized only a total of seven casinos to be allowed in the State, with four upstate. To prevent potential downstate competition for casinos in the Hudson Valley and the Catskills, the law provided for a moratorium until 2023 before downstate casinos could be authorized. To give this moratorium teeth, if downstate casinos were authorized before 2023, the State would forfeit a pro rata share of the licensing fees paid by upstate casinos and by Genting at Aqueduct. Budget Director Robert Mujica recently stated that breaking the moratorium would cost the State about $300 million in penalties.

There would seem to be little current purpose in maintaining the moratorium, as it was put in place partially to protect Genting's VLTs from potential competition from downtown casinos. However, it is now Genting that wants to end the moratorium. The moratorium was also enacted to protect facilities in the Hudson Valley and the Catskills. The only such casino is Resorts World Catskills in Sullivan County, which is also operated by Genting. The company owns upwards of 85% of its voting stock. The moratorium pointlessly currently only operates to protect Genting from itself.

In like manner, If Genting is moving to end the casino moratorium, there is no reason why it should financially benefit from the end of the moratorium. More than 75% of the moratorium payments are theoretically owed to Genting. If the moratorium is lifted, there consequently should be no State payments to Genting at Aqueduct or in the Catskills. Genting should not be able to rip up the moratorium and simultaneously cut up its own moratorium check. Why not simply pay the moratorium penalty to the other three upstate casinos? This would cost the State less than $75 million in place of the estimated $300 million in payments. If some moratorium payment is due to the Catskill casino, perhaps it should be paid to the localities that host the casino.

While Genting and MGM might simply wish that the legislature would make them casinos, that is an abuse of discretion. Legislatures should not bestow direct awards to favored interests. This smacks of the doings of the Tweed Ring and the suspicious award made by political interests a decade ago to the discredited Aqueduct Entertainment Group to run VLTs at Aqueduct. Instead, a competitive process needs to be in place to award the licenses.

The fact is that MGM and Genting would have a leg up in any competitive process. They have provided revenue and jobs for years. They have won competitions. There has been little hint of any gambling swindles and no apparent negative effects on the surrounding communities. Contrast this with casinos' proposals for downtown areas, where it will be hard to locate a community that supports a neighborhood casino. Additionally, the existing casinos in downtown areas in Philadelphia, Baltimore, Cleveland, and Cincinnati have generally under-performed.
VLT operators must trust the process.

The two VLT operators currently pay very high taxes to New York State for education. Yonkers pays 50% of its gambling revenue to the State; Aqueduct pays 43%. Casinos generally pay far lower taxes than VLT operators. As an extreme example, MGM's Borgata in Atlantic City has 18% higher gambling revenue than Yonkers, but pays just 17% of Yonkers' taxes. Any conversion of VLT facilities to casinos needs to ensure that tax revenues are not harmed.

Portions of the earnings of Aqueduct go to support Nassau County and New York Racing Association (NYRA) racing. A conversion to casinos also must account for aid to both assist NYRA and Nassau County.

Further, any conversion to casino operations needs to provide more assistance in the fight against compulsive and problem gambling. Video lottery operators do not make direct payments to support compulsive gambling assistance; casinos in New York do. We know that compulsive gambling is a silent killer. If we wish to help individuals and families suffering from the destruction of compulsive gambling, downstate casinos need to provide greater support.

Bennett Liebman, who previously served as Deputy Secretary to the New York State Governor for Gaming and Racing, is a Government Lawyer in Residence at Albany Law School.

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This page contains a single entry from the blog posted on March 29, 2019 6:17 PM.

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